Q1. Perth International Co., a
Q1. Perth International Co., an Australianmultinational company, forecasts 68 million Australian dollars (A$)earnings next year (i.e., year-one). It expects 58 million Chineseyuan (CNY), 42 million Indian rupees (INR) and 40 million Malaysianringgit (MYR) proceeds of its three subsidiaries in year-one. Italso forecasts the year-one exchange rates A$0.3568/CNY,A$0.0413/INR and A$0.6574/MYR.
Calculate the total Australian dollar (A$) cash flow foryear-one. (enter the whole number with no sign orsymbol)
Q2. Perth International anticipates a 5.46 percent increase in the year-one income of its subsidiaries inyear-two. It has information that the current 5.44 per cent, 7.75per cent, 13.08 per cent and 10.43 per cent nominal interest ratein Australia, China, India and Malaysia, respectively, will remainthe same in the next three years. Due to foreign currency highernominal interest rate, subsidiaries will invest 26 per cent, 51 percent and 39 per cent of their year-two earnings in China, India andMalaysia, respectively, for next year. Subsidiaries will remittheir remaining incomes (i.e., after investment) to the Australianparent. Perth International believes in the Purchasing Power paritywith considering a 2.11 per cent real interest in Australia, China,India and Malaysia to calculate the expected foreign currency valueagainst the Australian dollar for year-two based on the year-oneexchange rates A$/CNY, A$/INR, and A$/MYR.
What is the total Australian dollar (A$) cash flow foryear-two? (enter the whole number with no sign orsymbol)
Q3. In year-three, Perth International has aplan to expand the business in China, India and Malaysia.Consequently, it forecasts an 8.32 per cent increase in year-oneearnings of its subsidiaries in year-three. Perth Internationalanticipates 3.08 per cent, 7.06 per cent, 11.36 per cent and 9.22per cent inflation in Australia, China, Indian and Malaysia,respectively, in year-three. It considers the Purchasing powerparity to calculate the value of CNY, INR and MYR against theAustralian dollar in year-three using the year-two exchange ratesA$/CNY, A$/INR, and A$/MYR.
Note that investment of subsidiaries in year-two will be maturedin this year and include these investment proceeds to theyear-three cash flow. It means each subsidiary’s year-threecashflow is year-three earnings and year-two investmentproceeds.
What is the total Australian dollar (A$) cash flow foryear-three? (enter the whole number with no sign orsymbol)
Q4. The subsidiaries of Perth Internationalremit their earnings and investment proceeds to the Australianparent at the end of each year. The annual weighted average cost ofcapital or required rate of return of Perth International is 6.07per cent.
Calculate the current value of the Perth InternationalCo. using its expected cash flows in year-one, year-two andyear-three. (enter the whole number with no sign orsymbol).
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(Please post ALL 4 answers with working on paper clearlywritten.)
Answer:
Perth Internatioanl Co forecast 68 million Australian dollarsearning next year.
Company has three subsidiary company.
1St subsidiary expect to earn 58 Chineseyuan(CNY).
Expected exchange rate in year 1 for CNY will be A$0.3568/CNY
So Amount receivable in Australian Dollar = Exchange ratei.e.A$/CNY *CNY receivable
= 0.3568*58 i.e. A$20.6944 million
2nd subsidiary expect to earn 42 IndianRupee(INR).
Expected exchange rate in year 1 for INR will be A$0.0413/INR
So Amount receivable in Australian Dollar = Exchange ratei.e.A$/INR*INR receivable
=0.0413*42 i.e. A$1.7346 million
3rd subsidiary expect to earn 40Malaysian ringgit(MYR).
Expected exchange rate in year 1 for MYR will be A$0.6575/MYR
So Amount receivable in Australian Dollar = Exchange ratei.e.A$/MYR*MYR receivable
=0.6574*40 i.e. A$26.296 million
Total Australian dollar receivable in year one =68+20.6944+1.7346+26.296
= 116.725 million
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